Spring Statement Main Points with Industry Response

AGAINST THE BACKDROP of today’s 6.2% inflation rate announcement, the Chancellor today gave his Spring Statement in the House of Commons.

The economy is forecast to grow by 3.8% this year, down from the Office for Budget Responsibility forecast of 6.0%. Growth of 1.8% in 2023, 2.1% in 2024, 1.8% in 2025 and 1.7% in 2026 is forecast to follow.

Inflation is expected to average 7.4% for the rest of this year, while unemployment is predicted to fall further this year.

Debt is expected to reduce as a percentage of GDP from 83.5% of GDP in 2022/23 to 79.8% in 2026/27. Interest on the debt will reach £83bn in the next financial year – the highest on record.

Main Points for Construction

Fuel duty will be cut by 5p per litre until March 2023, partly allaying inflationary pressures.

VAT on energy saving materials (ESMs) such as solar panels, heat pumps, and insulation will be reduced from 5% to 0% for 5 years. The government says a typical family having roof top solar panels installed will save more than £1,000 in total on installation and £300 on their annual energy bill.

Business

The Employment Allowance, for smaller businesses’ National Insurance payments, will increase from £4,000 to £5,000 from April. Employees will be £330 a year better off as they won’t pay National Insurance on the first £12,570 earned, from July.

Rishi Sunak said basic rate tax would be cut before the next election, from 20% to 19% of income.

Businesses will see 90% of their leadership training costs covered by government through the 12-week Help to Grow: Management training scheme delivered by business schools.

The cost of apprenticeship training is 95% subsidised for SMEs that do not pay the Apprenticeship Levy.

The temporary £1 million level of the Annual Investment Allowance has been extended to 31 March 2023.

The Help to Grow: Digital scheme continues to offer eligible SMEs a 50% discount on approved software worth up to £5,000.

INDUSTRY RESPONSE

Build on the Foundations

James Talman, CEO NFRC

Chief Executive of the National Federation of Roofing Contractors (NFRC), James Talman said:

“I am delighted to see that the government has listened to our calls as an industry to promote the installation of energy efficiency measures by slashing VAT to zero per cent, on technologies including rooftop solar and roof insulation. It is encouraging to see the government invest in minimising heat loss and creating clean energy to power our homes.

“However, we need to go further to deliver significant emissions reductions and achieve net zero by 2050. Our homes account for 35 per cent of the UK’s energy use and emit 20 per cent of its carbon dioxide emissions. We urge the government to adopt the Construction Leadership Council’s National Retrofit Strategy, which offers a comprehensive long-term plan to make our homes greener and get on track to reach net zero.

“The Chancellor has also promised today that his Autumn Budget will include a cut to tax on capital investment by businesses. In order to support UK businesses to invest whilst delivering on net zero targets, we urge him to create a Green Annual Investment Allowance, which would allow investors and building owners to reclaim the tax on any green investment in commercial and industrial buildings, such as improving the energy efficiency of roofs. The longer we take to retrofit our existing building stock, the harder that task becomes—we need to see the Chancellor take leaps towards greener buildings.

“The construction industry along with many others will welcome the Chancellor’s announcement that fuel duty will be cut by five pence per litre, giving businesses help to continue operating amid rampant price increases. Whilst NFRC and the wider industry greatly supports efforts to increasingly power our industry with cleaner energy, we welcome moves to support businesses through this particularly challenging period.”

Boost to Retrofit Builders

Brian Berry, Chief Executive of the Federation of Master Builders

Brian Berry, Chief Executive of the FMB said: “With 29 million homes in the UK, of which many are leaky and energy inefficient, decarbonising our existing housing stock represents an important piece of the net zero puzzle. Historically, consumers have not been properly incentivised to commission green upgrades to their homes. This VAT cut will help householders insulate their home at a time when energy bills are escalating. It will also provide a much-needed boost to local builders operating in the retrofit market. The Government now needs to build on the VAT cut and implement a long term National Retrofit Strategy to provide business certainty.”

“The commitment from the Chancellor to improve the UK’s skills system is encouraging, notably the push for greater numbers of employers to train up staff. This is particularly true for construction, a sector that has suffered long-term skills shortages. Smaller firms in the construction sector already conduct the bulk of the training, with 71% of all construction apprentices being trained by them. Measures should focus on providing long-term solutions that incentivise more businesses to play their part in training the next generation of tradespeople. The FMB therefore welcome the Chancellor’s commitment to enhance this system.”

Red Diesel

“Unfortunately, the Chancellor made no reference today to the impact of the planned end to the Red Diesel Rebate on many smaller construction firms, already suffering from rising costs. While the cut in fuel duty will support builders in their travel to and from jobs and make buying regular diesel for machinery cheaper, delaying the end of the Red Diesel Rebate would have made a much more positive impact on builders’ wallets. This is precisely the wrong time to heighten costs for building projects, with an additional need for there to be greater alignment in ensuring that green alternatives, such as bio fuels, are affordable and accessible for construction firms.”

Long Overdue Energy Saving Measures

Richard Beresford, Chief Executive of the National Federation of Builders

Richard Beresford, Chief Executive of the NFB said: “The NFB, along with many others in the industry, has repeatedly, over many years, called on the Treasury to remove the VAT on measures which improve energy efficiency. To us, it always seemed like a ‘no-brainer’ to help incentivise the public to ‘green’ their homes and meet our country’s Net Zero ambitions and today we can finally welcome the decision the Chancellor has taken, it is long overdue but at last it is here.”

However, the NFB was disappointed that the Chancellor did not take the opportunity to postpone the changes to the construction sector’s entitlement to use Red Diesel. Beresford added: “As inflation is set to go above 7% this year, and the Government confirmed its intention to levy a further 1.25% of national insurance contributions on employers, the cost pressures on construction businesses are unprecedented. While the fuel duty cut is welcome for the country at large, the reality is that in construction, the effective rate of duty is set to rise by 47p per litre because of the removal of entitlement to use Red Diesel. The decision not to delay this will hurt businesses at the time when they most needed respite from rampant inflation”.

A Long Time Coming

RICS’ Bradley Tully, Senior Public Affairs Officer, said:

Bradley Tully, Senior Public Affairs Officer

“Our findings from the market suggest that the biggest barrier to improve the energy efficiency of homes is cost – 85% of respondents in fact.

“However, the road to achieving Net Zero always required the retrofitting of thousands of existing homes across this country to make them greener, and discounts for homeowners looking to support these ambitions have been a long time coming, so we’re delighted the Chancellor has finally listened to our call and taken action to cut VAT for families to retrofit their homes and drive down carbon emissions.

“Looking at the wider economic picture – including rising inflation – this poses a significant pressure for businesses, and while the business rate cut being maintained will help our highstreets, it does fall short from the widescale reform that they need to flourish.”

Difficult Times Ahead

Stephen Marcos Jones, CEO of the Association for Consultancy and Engineering

Stephen Marcos Jones, CEO of the Association for Consultancy and Engineering (ACE), said:

“Rising inflation is the backdrop to the Chancellor’s update with the official forecast from the OBR peaking at around 9% in 2022. The resulting impact – coming after what have been two extremely challenging years – means difficult times ahead for all businesses in all sectors.

“Whilst our members may not be as directly exposed as those working in other sectors, inflationary increases affect every single company which is why we would have expected more proactive, immediate and targeted moves to mitigate current inflationary pressures on UK PLC.

“The review of UK’s approach to R&D investment, with a wider scope and promise of increased relief is welcome. Of course, the devil is in the detail, but this has the potential to stimulate more innovation from the private sector whilst contributing to higher productivity. Furthermore, we welcome the moves to review how the tax system and apprenticeship levy can be used more effectively to encourage greater investment by employers in adult training.

“We would like to have seen more targeted measures to support Government ambitions on Net Zero and Levelling Up. The Statement was a missed opportunity to drive progress in these areas and use them as catalysts for both economic growth and recovery.”

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